Colin Williamson, 44, is a former member of the Royal Ulster Constabulary who joined ArmorGroup in December 2004. As someone who had been used to liaising with the British army during his time with the RUC, he said that he was dismayed at the way the operation was run.

"The original, official role was to be training and mentoring the Iraqi police," Williamson said. He said that it soon became clear that they would be involved in security matters.

"This included the handling of sources, which was identical almost to the work I used to do back in Northern Ireland in liaison with British army there. My role was to go to certain Iraqi police stations on a daily basis in the Basra area. But we were told not to report back any intelligence we picked up there, not to hand it over to the British military. Why? Because our bosses and probably, in turn, the FCO didn't want to expose how corrupt and infiltrated by the militia the police were."

Williamson said he believed such intelligence could have been vital. "I ignored the order and, at first, put the intelligence I picked up on my report sheets for the company," he said. "But nobody wanted to know. So I told the military everything I could pick up. Because I had an impeccable source inside the Iraqi police who didn't want money, he just believed the militias shouldn't be attacking the army that came to Iraq to overthrow Saddam Hussein.

"This officer was a brilliant source of information in the Basra region. At one stage I was moved to a very dangerous place in the city called the Old State Building. This officer used to let me know in advance when there would be a mortar attack on the base. Each time he gave me prior warning I would go to a certain company commander, a major in the British army, and in turn warn him about it."

He added: 'I am convinced this man's information saved lives and yet our official line was not to tell the military about any intelligence we came across regarding the police and the militias. He was so well informed that on one occasion when he rang he said: 'You are about to be attacked at any moment' and before he could put down the phone the mortars came in."

Williamson also claimed that ArmorGroup exaggerated the number of personnel it was using. "The buzz word among the management was 'bums on seats'.

Another former employee, John Braithwaite, said he signed up to go to Iraq in May 2006, having been given to understand that he would have a 12-month posting. Less than a month after arriving he was told he was redundant. When he tried to take action he discovered that the company was incorporated in Jersey and any claim would be through the Jersey courts.

"It appears that ArmorGroup, by taking on extra staff ... and quickly making some redundant, is essentially transferring the risk inherent in such contract work to employees while making fat profits for itself," his MP, Dr Phyllis Starkey, told the House of Commons earlier this year.

Christopher Beese, chief administrative officer of ArmorGroup, said that it was the first time he had heard the claim about intelligence not being passed on, although he had heard other complaints from Williamson. A meeting had been arranged in May to discuss the claims with the MPs .

He said that there was "no policy in place" that would prohibit intelligence being passed on. The normal practice would have been for a report to be made to an ArmorGroup project manager, who would have passed it on to police .

He denied that ArmourGroup exaggerated its numbers. "At the end of each month your manpower status is recorded for verification," he said. Senior police ensured that the numbers were accurate.

On Braithwaite's claims, he said that the company had documentary trails that showed that the correct procedures had been followed. The company was incorporated in Jersey because many of its employees were foreign nationals.

Defence officials said they were unaware of any ArmorGroup executive warning them of Iraqi attacks.

Security provider

ArmorGroup describes itself as "a leading international provider of defensive protective security service to national governments, multinational corporations and international peace and security organisations operating in hostile environments". It employs 9,500 people in 38 countries. Last year it had $137m (£69m) revenue and an operating profit of $3.5m. In Iraq the group carried out 2,250 convoy escort missions, according to its annual report.